Value Added Tax (Vat) In Nigeria, Emerging Problems And Prospects And The Way Forward

Project and Seminar material for Accountancy

Project and Seminar material for Accountancy


Abstract


This project is an attempt to analyze and evaluate the level of success made in the implementation and management of Value Added Tax. (VAT) was introduced in Nigeria was seen by, many as another fixed policy that may not succeed. In the contrary, this notion was proved wrong by the success of the Federal Board of Inland Revenue Services in the administration of VAT.

Under the Federal Board of Inland Revenue Services, there exist a VAT directorate responsible for the management and implementation of VAT in our country Nigeria. This piece of work focused on the strategies adopted by the Federal Board of Inland Revenue Services facilitates payment by the taxable individuals.

A touch is also made on the analysis and comparison of VAT with other forms of tax in Nigeria to prove its viability.

Finally, the work treated the contributions of VAT to Federal, State and local government revenue and their expectations.


Table Of Content


Preliminary Page(s)

  • Title page
  • Approval Page
  • Certification
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Content

Chapter One

1.0 Introduction

  • 1.1 Background of the study
  • 1.2 Statement of the problem
  • 1.3 Purpose of study
  • 1.4 Significance of study
  • 1.5 Operational definition of terms
  • 1.6 Need for the study
  • 1.7 Assumption of the study
  • 1.8 Limitation of the study

Chapter Two

2.0 Literature Review of VAT in Nigeria

  • 2.1 VAT Recustration
  • 2.2 VAT Returns
  • 2.3 VAT Implementation in Nigeria
  • 2.4 Advantage of VAT
  • 2.5 Problem of VAT
  • 2.6 Administration of VAT
  • 2.7 Overview of VAT administration
  • 2.8 The offences and penalties in VAT administration.
  • 2.9 Vatable goods and service
  • 2.10 Exempted goods and Service
  • 2.11 VAT in versus other form of tax.
  • 2.12 VAT versus Withholding Tax.
  • 2.13 The way forward.

Chapter Three

3.0 Research Methodology


Chapter Four

4.0 Presentation And Analysis Of Data


Chapter Five

5.0 Summary, Conclusion, Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • 5.4 Bibliography

Chapter One


1.0 Introduction

1.1 Background Of The Study

Taxation in every sense is a tool of economic reformation. Government, the work over, have always found ways of imposing various levies on their subjects. This is done with a view for raising revenue for its expenditure.

In Nigeria, some of the type of taxation Include personal Income tax, Capital gain tax, Capital transfer tax, sales tax, petroleum tax and Withholding tax.

Value added tax as a form of tax was introduced in Nigeria on December Ist 1993. Though the operational date was 1st January 1994. VAT is a tax charged on the consumption of goods and service locally or imported into the country since then, many countries have adopted this tax policy as it has proved successful in its implementation. In Africa, up to 17 countries including Nigeria adopted VAT and over sixty Countries in the World operated VAT since its inceptions. The trend has kept on growing as many countries are turning toward VAT as a remedy for the other unsuccessful form of taxes, even though Nigeria joined the league of countries operating VAT just of 1994. She has very unique attributes in the operation of this new tax policy. Nigeria charges a single rate of 5% unlike most of other countries which charge multiple high rates.

Value Added Tax (VAT) in Nigeria is Federal Government Tax which is central administered using the existing machinery of the Federal Inland Revenue Service (FIRS). Value Added Tax has a directorate within frame-work of the FIRS with the head of office in Abuja. It was this group that proposed VAT and in that direction, a committee was set up to conduct studies on the implementation of VAT.

VAT replaced the sales tax whose base is regarded as narrow and which covers only nine categories of goods plus sales and service in registered hotels, Motels, and similar establishment. In contrast, VAT base is broader and include most professional services and banking transactions which are high profit generating sectors. The revenue generated from VAT is shared among the three tiers of government, the Federal, state and Local government.

When the tax system was first implemented in 1994, the state government received 50% of the proceeds. While 20% went to Federal government for covering its administration cost. In 1996, the distribution of the revenue generated from VAT was further shared as follows: Federal government 35%, state government 40% and the local government 25% in 1997, the distribution formular was the same as in the 1996 distribution formula. It was further changed as follows:

Federal Government 15%, State government 50% and Local government 35%, the 2000 distribution formula is Federal government 15%, state government 50% and local government 35%.


1.2 Statement Of Problems

As a result of the unsuccessful nature of the previous economic recovery policies such as the structural adjustment program, we may see VAT as another such policies that would join the band Wagon of failure in the light of the above, these are some of problems associated with the management and implementation of VAT in Nigeria.

  1. The Infrastructure facilities needed for the effective implementation of VAT are either not in existence or in sub standard forms.
  2. It is not clear where government channel the revenue derived from VAT in Nigeria.
  3. The public either directly or indirectly resist VAT.
  4. People argue that VAT will lead to inflationary tendency.
  5. The VAT administration and the VAT able person are illiterates.

1.3 Purpose Of Study

The study is done to assess and hence determine the desirability of value added tax (VAT) as compared to other taxes. The study goes ahead to tell us about VAT in its sub-division, how it aims at attaining set goods and its weaknesses.

The study will review the overall tax system of the country, the advantages and disadvantages of the new tax system and the areas which requires replacement with other tax system that will increase revenue of the government, track with economic situation and inflation there upon.


1.4 Significance Of Study

The significance of or importance of this work should not be over emphasized. The major importance or need for the study is listed:

  1. The research work will assess and ascertain the level of effectiveness of the VAT administration in Nigeria.
  2. The Work will attempt to investigate and identify the areas the government channels spends VAT returns revenue.
  3. The work will be evaluated and ascertain the level of infrastructure provision for VAT purposes.
  4. The work will ascertain peoples reactions towards the new tax policies of VAT.
  5. The work will also investigate and ascertain the role literacy level plays in the operation of VAT in Nigeria.

1.5 Operational Definition Of Terms

Vatable Goods And Services:

These are goods and services that are not exempted from VAT.

VAT Proceeds / Returns:

This is money collected from VAT payers and which are remitted to the government.

VAT Tax Drive:

Is to stimulate the collection of VAT from defaulters and enforce prompt remittance of VAT payable.

Taxable Activity:

This include any activity other than those in the exempted list conducted as a business, vocation, trade of profession.

Vatable Persons:

Vatable person is one who trade in vatable goods and services for consideration.

VAT Records:

Two categories of records exempted to by all vatable persons are in respect of input and output.

Exempted Goods And Services:

These are goods and service that are exempted from VAT.

Input VAT:

This is the VAT suffered on the consumption of goods and service.

Output VAT:

This is VAT chargeable by the suppliers of vatable goods and services on the supplier made to its agent on consumers.

Final Consumer:

This is the person who is at the terminal end of the distribution chain who bears the burden of VAT.


1.6 Need For The Study

There is great need for the study of VAT and these are as follows:

  1. Since the adoption of a flat rate 5% on all taxable items enhances the complexities and manipulations associated with multiple VAT rate system, it now makes it easy for the tax payer to know what the tax and tax rate is all about and how to go about playing it. And on the part of the administrator, it makes it easy for administrators to collect tax.
  2. The Nigeria VAT much of its operational impetus from its simplified frame work. Owing to this fact, even fairly educated persons understand both the application of the tax rate to transactions and the calculation of VAT payable to government.
  3. Another traceable need for the study of VAT is to know and identify. The taxable segments of the economy since we have the organized public and private sector (OPPR) and also to know the non-tax prove areas which is the informal sectors that included the micro-enterprises.
  4. Another need for the study is for the FIRS to focus on the more easily tax base in order to identified and pursue a defined vatable public that is dominated by enlightened segment of the society.

1.7 Assumption Of The Study

Since the inception of VAT, there have been some assumptions against the study which are not true. This is as a result of the unsuccessful nature of the previous economic recovery policies VAT is been seen as another such policies that would turn out to be a failure. These assumptions are as follows:

  1. It is been assumed that the imposition of VAT on goods is to exploit the citizens.
  2. It is also assumed that the infrastructural facilities needed for the effective implementation of VAT are either not in existence or in sub-standard form.
  3. That, it is not apparent when governments channel the revenue derived from VAT in Nigeria.
  4. It is also assumed by some people that in line to come VAT will lead to inflationary tendencies.
  5. Finally, it is assumed that VAT administrators and the vatable person are either illiterates or barely educated.

All these are mere assumptions. They are not tackled up with any form of fact. With the introduction of VAT, the country will yet to greater heights.


1.8 Limitation Of The Study

The study is mainly focused on how VAT is administered in Nigeria economy, the way it is managed an implemented are criticisms against the system of taxation. The method of computing VAT and accounting models used for VAT is explained. The vatable goods and service person and organization expected to register for VAT are made known. VAT offenses and penalties as stated too, also the length to which VAT has successive in Nigeria.
The study is limited by the following factors:

  1. Lack of finance
  2. Time constraint
  3. Lack of adequate data and information with respect to VAT as it is being applied in Nigeria.
  4. Lack of Co-operation by some respondent.

Chapter Five


5.0 Summary Of Findings, Conclusions And Recommendation

5.1 Summary

VAT which is an attention for value added tax based on the value of goods and services. The tax system was introduced in 1993 to replace sales tax. VAT is a tax which is charged on different stages of production and its final burden rest on the consumer of goods and services which are vat able. VAT is charged at a flat rate of 5% and is included in the invoice of goods and services.

Locally manufactured goods and imported goods are vat able except some goods and services which are VAT exempted. It is a point of duty for vat able persons to make VAT returns to local VAT offices monthly next to that in which the sales were made.

VAT is operated and administered by the Federal Inland Revenue Service which provides free information’s to intimate the public on VAT issues.

VAT is a tax system, which is difficult to evade as people (consumers) pay the tax without much consciousness of the payment. Many VAT has proved itself as one of the fiscal policies of government that has come.


5.2 Conclusion

The effort put in this research work have not been in vain as I have been able to make some concrete findings from my research work, it was revealed that VAT has been a very successful tax system operating in Nigeria. It is also the best fiscal; policy ever operated in Nigeria economy.

VAT has proved the followings:

  1. To be more successful and rewarding than the sales tax.
  2. To be easily administered than other forms of tax.
  3. And that VAT agents representing the government very well in the process of VAT collection.
  4. It benefits the poor since they can comfortably manage the hitch they have.

All these conclusion were arrived at after the test of hypothesis conducted.

By the revenue generated from VAT since its inception, it was seen that VAT has the highest revenue growth.


5.3 Recommendation

In respect of his work carried out, so many flaws were discovered. For more effectiveness of VAT in Nigeria economy, the followings are recommended;

More Vat Office:

The government should work better at the grass root level. It is when the government should work better at the grass root level. It is when the government can teach the government closely that both can have the impact of one another. More VAT offices should be opened in local areas to enable the vat able persons obtain necessary information and make necessary returns at the shortest distance and cheapest cost. People comply with the government regulation when such government is close to them than the other way round. Therefore, VAT regulation should not be an exception.

Tax Rate:

In view of the current need for rapid growth and development of our economy, I would recommend an upward review of the VAT flat rate of 5% to 7% in Nigeria. One of the countries with the lowest VAT rate in the world is Nigeria.

The government should increase the VAT rate to 7% and USA the additional revenue to generation or create a trust found for the development of our rural communities.


Value Added Tax (Vat) In Nigeria, Emerging Problems And Prospects And The Way Forward


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